SEM experience to date and the impacts for the future Sean McGoldrick, General Manager SEMO

SEM Overview

Mandatory Pool

Timeframes

Electricity Market High Level Overview Initial Daily Schedules, Prices and Settlement MP Meter TSO SEMO Publish Forecasts Submit Bid Offers Produce Indicative Schedule and Price Collect Real Time Data Follow Control Instructions Run System Real Time Invoice Weekly Position Financially Settle Position D-2D-1DD+1 D+4Weekly Review Position Provide final Meter Data Indicative Schedules, Prices and Settlement Provide available Meter Data

Participants in the SEM  45 Participants have registered in SEM  31 Participants have registered Generator Units  10 Participants have registered Interconnector Units  Registered Capacity in the Market: 9856 MW Predictable Price Maker: 8567 MW Variable Price Maker:None Predictable Price Taker: 346 MW (All Peat) Variable Price Taker:157 MW (All wind) Autonomous:786 MW 781 MW wind 5 MW of biomass landfill gas generation

Some Participants Airtricity Energy Supply NI LtdGU + SU Airtricity LtdGU + SU Arklow Energy LtdGU Aughinish Alumina LtdGU + SU Ballywater Wind FarmsGU Bord Gais EireannSU Bordnamona Energy LtdGU CHP Supply LtdSU Coolkeeragh ESB LtdGU ESB Customer SupplyGU + SU ESB Independent Energy NIGU + SU ESB Independent Energy ROISU ESB Power GenerationGU + SU First Electric LtdGU Hibernian Wind Power LtdGU Highland Wind EnergyGU Huntstown Power Company LtdGU Interconnector Administrator SONIN/A Mantlin LtdGU Mountain LodgeGU Moyle Energy HoldingsIU Muinngnaminine Windfarms LtdGU NIE Power Procurement BusinessGU NIE SupplySU Premier Power LtdGU Quinn Energy Supply LtdSU Quinn Windfarms LtdGU Saorgus Energy LtdGU Sorne Wind LtdGU SSE (Ireland) LimitedIU Synergen PowerGU Tursillagh 2 Windfarms LtdGU Tynagh Energy LimitedGU Vayu LtdSU Viridian Energy LimitedSU Viridian Energy Supply LtdGU + SU Viridian Power LimitedGU Waterpower Engineering LtdSU

Market Share Trend – Generators

Market Share Trend – Suppliers

SEM Financial

Cashflow Generator Unit in SEM  Energy Payments: -Paid System Marginal Price (SMP) for energy scheduled by the market in each half hour -Settled on a weekly basis  Capacity payments: -Paid for available capacity in each half hour -Settled on a monthly basis  Other payments -Constraint payments (+/-) If TSO dispatch differs from market schedule -Uninstructed imbalances (+/-) If metered generation doesn’t correspond to dispatched output -Make Whole Payments (+) If costs incurred are not recovered through other market payments -All settled on a weekly basis  Other charges -Currency Charges (Weekly & Monthly) -Market Operator charges (Weekly – variable, Monthly – fixed) -Unsecured Bad Debt charges -Generator Under test charges

Cashflow Supplier Unit in SEM  Energy Charges: -Pay System Marginal Price (SMP) for energy consumed (MWh) in each half hour -Settled on a weekly basis  Capacity Charges: -Charge based on consumption of energy (MWh) in each half hour -Used to pay Generator Units for capacity -Settled on a monthly basis  Other charges: -Imperfections charges: Charge per MWh of energy consumed -Currency Charges -Market Operator charges

System Marginal Price by Trading Period January 2008 to August 2008 Tightly Banded!

Financial Summary  SEMO will process Energy Payments of approximately €4/£3 Billion annually  A further €600/£461 Million in Capacity Payments annually  The market remains fully collateralised  It holds collateral, in the form of Letters of Credit and Cash deposits, from supply companies of approximately €320/£246 Million  It prices the market and processes payments in two currencies (Euro and Sterling)  To date SEMO has processed over €800/£615 Million in payments  800 Million in, 800 Million out, with 1 day turnaround between  SEMO’s annual operating cost, including depreciation, is €25/£19.2 Million

SEM IT

IT Systems  The SEMO IT systems provide a modern, open, e-business, n-tier platform architecture to provide maximum scalability, availability, resilience, performance, reliability and stability to enable mission critical operations for the SEM  The key components of the solution are: - Market Interface System provides the interfaces for information exchange with the SEM systems – i.e. interaction with Market Participants, Meter Data Providers, and System Operators - Market Applications System that provides the scheduling and pricing mechanisms - Market Settlement System that provides the meter data management, settlement, and billing and invoicing functions - Finance System that provides financial processing capabilities including credit management and electronic funds transfer

IT Systems  The SEMO corporate and market systems consist of approximately 120 servers across two sites (Belfast & Dublin).  There are also a large number of applications, backup devices, storage devices, communications equipment and other peripheral equipment.  The systems are fully redundant across two separate locations connected by 2 high speed dedicated links.  The systems can be run entirely at either location or a mix of both locations.  The main systems were delivered by 3 independent vendors with in excess of 30 smaller vendors supplying hardware, software and other systems.

IT Capabilities

SEMO Website

SEM Future

Development potential  Financial Market -Physical trading remains the same -Players CFDs outside pool -Currently, there are Directed Contracts and Non-Directed Contracts -Greater liquidity required  SEM lightly interconnected to BETTA  Moyle HVDC 500MW Import 80MW Export…technically capable of 500MW export  Future interconnectors planned -Regulated: EirGrid Merchant: Imera Both aim to be commissioned by 2012  Explicit Auctions -Moyle and EirGrid short and medium term -Imera long term

Expansion/Integration: Options  A. Unified Pan-European solution: employing a centrally legislated and harmonised approach. Significant change from the present approaches.  B. Horizontal Integration: Market regions progressively merge, developing and sharing more efficient coupling mechanisms and leading to fewer, larger market regions.  C. ‘Dome’ Coupling: where a central entity or function is created to determine efficient flows between the coupled market regions (that each utilise their own mechanisms to resolve inter-regional flows and market prices).  7 Regions -France, UK, Ireland -SEM has linked NI and ROI -Integration with UK and France?

SEM/BETTA Comparison SEMBETTA  Gross Mandatory Pool -For energy; capacity payments mechanism -Anticipated development of CFDs, etc.  Bilateral Market -With central balancing mechanism and settlement for imbalances  Gate Closure: Day ahead  Gate Closure: One hour ahead  Central Dispatch – Merit Order  Self-Dispatch  Explicit Capacity Payment Mechanism  No Capacity Payment Mechanism  Ex-Post System Marginal Price (for every half hour)  Separate System Buy Price (paid by participants who are “short”) and System Sell Price (paid by those who are “long”) for each half hour

SEM/BETTA Comparison cont. SEMBETTA  No central notification of bilateral contracts  Bilateral volume contracts for each half hour notified up to 1 hour ahead  Dual currencies - €/£  Currency exchange costs socialised  Single currency - £  Settlement and Invoicing -Weekly billing periods -Payment due 10 days after invoice -Capacity settled on monthly basis  Settlement and Invoicing -Each settlement day -Payment due 29 days after invoice  Credit Policy: aims for full collateral cover of known and forecast liabilities  Credit Policy: aims for full collateral cover of known and assessed liabilities

SEM/BETTA Comparison cont. SEMBETTA GOVERNANCE  SEM Committee (Regulatory Authorities and two independent members)  Independent Panel: key role in decision making and proposals to regulator  Rules in published code (TSC)  Rules in published code (BSC); overseen by Independent Panel  Market Operator (SEMO) -Joint venture between two system operators  Market Operator (ELEXON) -Independent subsidiary of system operator -Managed by Independent Board  Change Process -Defined in TSC; final authority on modification proposals lies with the Regulatory Authorities  Change Process -Defined in BSC; final authority on modification proposals lies with regulator OPERATIONAL  SEMO uses agents to develop systems, but operates them itself  ELEXON makes use of agents that develop and operate systems

Future of SEM  Greater Coupling with BETTA -Facilitates larger/faster penetration of renewable energy in both markets  Integration and creation of an All Islands/Regional Market  Return to a Bilateral Market? -Market share of incumbents reduced -Less transparent -Greater Competition in retail and wholesale markets? -Both Generation and Supply arms in energy companies  Extension of Gross Mandatory Pool? -Significantly increased collateral requirement

Summary

SEM Experience to Date  The market has been launched on time and within budget  The Market has operated successfully in its first 11 months  A number of major software releases have been successfully put into production without interfering with the market schedule  13 new participants have joined the SEM since market launch  Market Development continues (Over 150 Modifications considered since market launch, single design authority, redesigned website, market system development plan in place)

Further Details Thank You Questions Welcome For further details on the Single Electricity Market please see: